Euro 'could strengthen to $1.50'

A FORMER economic adviser to Bill Clinton shook up the Davos World Economic Forum this week.

Martin Bailey's comments that the dollar could slump to $1.50 against the euro has given those exercised about the dollar's future a little bit more to fret over for the weekend.

Republicans will brand the statement opportunistic and a cheap shot at their esteemed president George W Bush. They may be right to question Bailey's motives, and are probably also right about his judgment call on the currency.

Several months ago somebody with less antipathy towards the US administration suggested to this newspaper that the dollar might yet have to be rescued in the next 18 months as a result of it heading into freefall.

That was Will Hutton, author of the State We're In, who is critical of the extreme version of free market economics favoured by Mr Bush and his Republican backers. Both views are probably at odds with reality. It is interesting however that the gyrations of the dollar have replaced the intense scrutiny of the US for signs of economic recovery. That shift in focus is most likely due to the growing acceptance among analysts that recovery there is well- established.

For how long may become the next economic fixation. But for the moment preoccupation with the rise and fall of the dollar is the new economic sport. Global trade is accelerating, especially in Asia, but growth prospects in the eurozone and Japan remain notably less favourable than in the US.

The commitment given at Lisbon in 2000 was to make Europe the most competitive region in the globe.

Since then nothing much has been done to achieve that and the laggardly nature of the economic bloc suggests the Lisbon 2000 declaration was aspirational.

With 10 states coming on board this year the mind boggles as to how such high goals can ever realistically be achieved.

Which brings me to a more serious point - How can EU ambitions for a transparent and open market be achieved in the face of such cultural and economic diversity?

It is important to realise the EU began as an antidote to both world wars. To date that part of the deal has been well delivered on. Delivering an economy that is the most competitive in the world is another matter.

Evidence to date suggesting growth of less than 1% this year, compared to 4.5% in the US, highlights the problem. The real talking point in the next few years may well be the fate of the EU and the single currency and not the dollar. It is true that Europe favours the free market approach less than the US. However, if the EU wants to become the most competitive economy in the globe, implicit in that goal is adaptation to the extreme form of stock market-driven capitalism favoured by the US.

Winner takes all and rewarding shareholders is what drives the US.

Tánaiste Mary Harney is a proponent of that style of economics as is her close cabinet colleague, Finance Minister Charlie McCreevy.

Whether it is possible to deliver a system as robust as the US across Europe is highly questionable.

To take a more self-centred perspective, it looks as if Ireland can continue to prosper while the rest of Europe struggles.

Increasingly, forecasters are suggesting a good uplift this year with prospects of us returning to trend growth of 5-6% next year a distinct possibility.

However, it is fanciful to start heralding the return of growth of Celtic Tiger proportions.

There is also concern that the US recovery may only be temporary and that after the presidential election the administration will have to face up to the massive deficits engulfing the economy.